Dealing with Risk
While most of this book will be spent discussing why risk matters and how to
incorporate it best into decisions, we will lay out two big themes that animate much of
the discussion. The first is the link between risk and reward that has motivated much of
risk taking through history. The other is the under mentioned link between risk and
innovation, as new products and services have been developed to both hedge against and
to exploit risk.
Risk and Reward
The “no free lunch” mantra has a logical extension. Those who desire large
rewards have to be willing to expose themselves to considerable risk. The link between
risk and return is most visible when making investment choices; stocks are riskier than
bonds, but generate higher returns over long periods. It is less visible but just as
important when making career choices; a job in sales and trading at an investment bank